Shares in Small China Consumer Stocks Lure Investors, Pose Risks

September 20, 2013 Leave a comment

Sep 18, 2013

Shares in Small China Consumer Stocks Lure Investors, Pose Risks

By Mia Lamar and Isabella Steger

Investors hungry for China-related consumer stocks have snapped up shares in Tenwow International Holdings Ltd.1219.HK -1.91%, a Chinese food and beverage maker, sending them 17% above their offer price in their debut on Tuesday and another 3% higher on Wednesday. Those gains could be short-lived, though, if previous performances by small companies in the sector are any guide. Edward Fung, investment advisory chief at brokerage Kim Eng Holdings Ltd., warned on Wednesday that shares in new listings often move in line with the short-term focus of traders, with little relationship to company fundamentals. “Just a reminder to those who are in the game,” Mr. Fung said.Certain investors in Milan Station Holdings Ltd.1150.HK -4.60%, a retailer of second-hand luxury items, probably need no reminder. Milan Station saw intense demand for its shares ahead of its May 2011 initial public offering, and the shares soared as much as 77% on the first day of trade. They look like less of a must-have now, however, having fallen 74% from their IPO offer price.

Then there’s Oi Wah Pawnshop Credit Holdings Ltd.1319.HK +10.64%, which ahead of its March listing touted rising demand among young people trying to satisfy their material desires. Investors, though, are exercising plenty of restraint when it comes to the company’s shares. They are 32% below a peak hit just days after the IPO.

Tenwow, which has hired Hong Kong pop singer Jacky Cheung Hok-yau for endorsements, last week raised US$202 million in an IPO in which the allotment for retail investors was 55 times oversubscribed.

The company faces risks, including a clampdown on corruption in China because it relies on distribution of high-end liquors such as Martell and Hennessy for more than half of its revenue, said Hannah Li, senior securities analyst at SHK Financial.

A recent wave of mergers and acquisitions in China’s consumer sector could be reigniting interest in consumer-related stocks, brokers say. In August, L’Oreal SA offered to buy Hong Kong-listed Magic Holdings International Ltd., a China-based maker of cosmetic facial masks, for about US$845 million. This month, Sweden’s Svenska Cellulosa AB offered to acquire Hong Kong-listed paper products maker Vinda International Holdings Ltd. for US$1.12 billion.

A number of companies are planning to tap into that demand via Hong Kong IPOs. The biggest deal in the pipeline is that of China Huishan Dairy Holdings Co., which is aiming to list this month and is expected to raise up to US$1.3 billion. International Houseware Retail Co., which operates the Japan Home Center stores in Hong Kong and other Asian countries, has raised US$78 million after shares in the retail allotment were more than 100 times oversubscribed. The company is part-owned by European private-equity firm EQT Partners.

The decline in Oi Wah’s shares hasn’t deterred another small consumer-credit firm from going public. Hong Kong Finance Group Ltd., a mortgage lender, also plans to list in the next two weeks, and expects to raise around US$13 million.

Filed under Investing Process, Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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